Union Budget 2026: What changes taxpayers expect from the old and new income tax regimes

As the Union Budget 2026 approaches, the debate around India’s old and new income tax regimes has once again moved to the forefront. With salaried and middle-class taxpayers weighing the trade-offs between higher deductions and simpler tax slabs, expectations are building for changes that could make tax planning more equitable and practical across income groups.

Old tax regime: Deductions still matter

The old tax regime continues to appeal to individuals with structured financial commitments, particularly those with home loans, insurance policies and long-term investments. It offers a wide range of deductions that help reduce taxable income. Section 80C allows deductions of up to ₹1.5 lakh for investments such as provident fund contributions, public provident fund (PPF), equity-linked savings schemes (ELSS) and life insurance premiums. Additional relief is available through Section 80D for health insurance, deductions for home loan interest under Section 24(b), and exemptions for House Rent Allowance (HRA) and Leave Travel Allowance (LTA). Salaried taxpayers also benefit from a standard deduction of about ₹50,000.

“The old tax regime under the Income-tax Act, 1961 continues to be beneficial for taxpayers with structured investments, housing loans, and eligible deductions. While the new regime offers lower slab rates, it removes most deductions and exemptions, making the choice taxpayer-specific,” said Akshay Jain, Direct Tax Partner, NPV & Associates LLP.

Why planned taxpayers still prefer the old regime

Jain said taxpayers opting for the old regime can claim home loan interest deductions of up to Rs 2 lakh, investments of up to Rs 1.5 lakh under Section 80C, and an additional Rs 50,000 deduction for National Pension System (NPS) contributions. “Considering the increased rentals in metro cities like Mumbai, Delhi and Bengaluru, HRA exemption is much more beneficial for salaried employees,” he said, adding that the old regime remains relevant for those with planned finances, insurance cover and retirement investments. He emphasised that year-wise comparative calculations are essential before making a choice.

New tax regime: Simpler, but limited relief

The new tax regime under Section 115BAC offers lower tax rates and a higher standard deduction of around Rs 75,000. However, it excludes most popular deductions such as Sections 80C and 80D, HRA and LTA. Benefits are largely limited to the standard deduction, employer contributions to NPS and select retirement-related exemptions. This has created a difficult trade-off for taxpayers whose financial commitments are not adequately addressed under the simplified structure.

Current tax slabs

Here are the detailed New Tax Regime slabs for FY 2025-26:

Income Range (INR)     Tax Rate (%)

Up to ₹4,00,000    Nil

₹4,00,001 to ₹8,00,000    5%

₹8,00,001 to ₹12,00,000    10%

₹12,00,001 to ₹16,00,000    15%

₹16,00,001 to ₹20,00,000    20%

₹20,00,001 to ₹24,00,000    25%

Above ₹24,00,000    30%

Expectations from Budget 2026

“Budget conversations often circle back to the same question for salaried Indians—will this be the year taxes finally feel fairer,” said Ram Medury, Founder and CEO of Maxiom Wealth. He pointed to expectations of raising the 30 per cent tax slab, smoothing rate transitions and possibly linking slabs to inflation. “Indian salaries grow gradually, but tax slabs remain unchanged for long periods, which quietly increases the tax burden over time,” he said, adding that indexation could make the system more equitable.

Sanjay Kumar, Director at Nangia Global, said the old regime encourages savings, insurance and home ownership, while the new regime’s simplicity has helped it gain acceptance. “However, changing personal circumstances often make the choice between the two regimes challenging,” he noted.

Call for a balanced framework

With many taxpayers having moved to the new regime and a significant segment still undecided, expectations from Budget 2026 are high. Tax professionals are calling for a more balanced framework—either by allowing select deductions such as health insurance or home loan interest under the new regime, or by increasing deduction limits under the old regime to keep it relevant.

Industry stakeholders also stress the need for clearer rules, reduced paperwork and simpler compliance. As Budget day draws closer, a consensus is emerging around a calibrated approach that balances simplicity, savings incentives and effective tax administration, giving taxpayers greater clarity and confidence in planning their finances for the years ahead.